Are Oppression Claims Arbitrable?

Brief facts

In the case of Teo Heng Tatt v All Kurma Sdn Bhd & Ors [2024] CLJU 1471, the Plaintiff (“Teo”) being a former salaried director, is a minority shareholder that holds 20% of shares in the 1^st Defendant Company (“the Company”) while the 2^nd and 3^rd Defendants (“the Defendants”) are majority shareholders that hold 60% shares in the Company. The parties have previously entered into a Shareholders Agreement (“SA”) which included an arbitration clause at Clause 25 for any disputes arising out of the agreement to be referred to arbitration in Singapore under the Singapore International Arbitration Centre (SIAC) Rules.

The claim of oppression centred on decisions made by the Defendants, which allegedly disadvantaged and/or excluded Teo in their decision-making processes including acts of impropriety and engaging in competing business. At the same time, the 1^st Defendant had also filed another action claiming that Teo was in breach of his fiduciary duties for incorporating competing businesses.

Therefore, Teo filed the oppression action herein premised on the contention that the conduct of the Defendants tantamount to oppressive conduct. The Defendants, on the other hand, argued that the dispute should be referred to arbitration, citing the arbitration clause under Clause 25 of the SA.

(a) Plaintiff’s argument

Teo argued that the nature of the dispute—oppression of minority shareholders, was a matter that required judicial intervention, and in any event, parties are allowed to bring concurrent proceedings in the High Court even if parties had agreed to go for arbitration.

(b) Defendants’ Argument

The defendants contended that the arbitration clause was binding and that all disputes, including oppression claims, should be referred to arbitration.

(c) The High Court’s decision

The Court ruled favour in the Defendants that the parties ought to have refer the dispute to arbitration, because:

(i) The SA contained a valid arbitration clause that mandated that disputes arising from or in connection with the agreement, including allegations of oppression, were to be resolved through arbitration.

(ii) The alleged oppression claims raised by Teo, fell within the scope of the SA and well within the definition of ‘dispute’ and thus, oppression claims are indeed arbitrable by virtue of S 4 of the Arbitration Act 2005. (also referred to Padda Gurtaj Singh v Tune Talk Sdn Bhd & Ors [2022] 4 MLJ 257, where as long as there is valid arbitration agreement, it is mandatory for the Court to stay the proceedings.)

(iii) The Defendants did not take any steps in the proceedings, the prior legal suit filed by the Company (albeit under the control of the Defendants) was related to different issues and not filed by the Defendants in their individual capacity as shareholders.

Based on the aforesaid, the Court had granted a stay of proceedings under Section 10 of the Arbitration Act 2005 in holding that the dispute ought to be referred to arbitration, as per the Clause 25 of the SA mutually agreed by the parties.

In conclusion, this decision reaffirms the Malaysian judiciary’s support for arbitration as a means of resolving disputes. A mandatory stay of proceedings will be granted pending matters to be referred to arbitration when it is provided for in the Agreement.

This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.

About the Authors

Lum Man Chan
Partner
Dispute Resolution
Halim Hong & Quek
manchan@hhq.com.my

Esther Lee Zhi Qian
Pupil-in-Chambers
Dispute Resolution
Halim Hong & Quek
esther.lee@hhq.com.my

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